New Delhi: A Bill to amend the Insolvency and Bankruptcy Code (IBC), 2016, allowing home buyers to be treated as financial creditors, was passed in the Lok Sabha on Tuesday amid allegations from opposition parties that some changes were intended to “help just one industry”.
Finance Minister Piyush Goyal said the aim of the Insolvency and Bankruptcy Code (Second Amendment) Bill was to ensure that all cases are led to resolution instead of liquidation.
He said the Insolvency Law Committee submitted its report on March 26 and every recommendation of the committee was accepted and brought into the amendment.
The Bill, which seeks to replace an ordinance brought by the government earlier this year, was introduced by Goyal on July 23. The Minister said the government brought the ordinance to expedite the resolution process.
“We wanted that the benefits (of committee recommendations) are quickly brought into the resolution process. I feel that the focus of the government should be on resolution, not liquidation. Liquidation should be our last option. And longer the delay in the process, greater are the chances of job loss,” Goyal said in his reply during the discussion on the Bill in the Lok Sabha.
He added the necessity to bring the ordinance was also to protect the interest of home buyers who would now be treated as financial creditors.
“It is the responsibility of the government to protect the interests of home buyers and that’s why it was important to bring the ordinance. However, all the provisions are prospective in nature, not retrospective. So there is no question of bringing it to benefit any particular individual or industry,” he said.
The Minister added that most cases of bad loans took place before 2014 and that the quantum of bad loans tripled between 2007 and 2014 due to ever-greening and restructuring of loans.
He said during the earlier governments, borrowers of big loans did not worry about paying back as an environment was created where they thought the responsibility lay with banks to recover the loans, not with them to pay back.
“We have changed that situation. Now, the loans are coming back to the banks,” he said.
He said the cost of resolution was very high during the earlier process, which has now been brought down.
“Earlier, the cost of recovery was nine per cent and it used to take seven to eight years. Even then the recovery process lingered on. Under the IBC, the cost of recovery has been reduced to below one per cent and the average recovery has been 55 per cent with 100 per cent recovery in some cases,” Goyal said.
During discussing on the Bill, senior Congress leader Veerappa Moily said there should be checks and balances at every stage and the bill should be referred to the Standing Committee on Finance.
Terming the ordinance tainted, Moily said: “A stock answer with you is that the NPAs are all of previous legacy. But what have you done to correct that legacy except raising your hand? They are now amounting to Rs 11 lakh crore or Rs 12 lakh crore. It is galloping.”
“This is a holistic law. Your oratory power should match your action. We need to work on this in a holistic way. This Code was referred to none of the standing committees.
“You do not have faith in the Lok Sabha. You do not refer the matter to us,” he added, saying during the UPA rule, they always referred all financial bills to the Standing Committee on Finance.
Moily also said as the Minister for Corporate Affairs, he sent Companies Law to the Standing Committee on Finance, which was headed by Yashwant Sinha, four times.
“This Bill is of no consequence. It will not serve the purpose. Even if it serves, it will serve only the interests of one or two individuals…”
N.K. Premachandran of RSP opposing the Bill said: “I would like to appeal to the Minister to clarify and explain the urgency in issuing an ordinance. The promulgation of an ordinance is a clear case of crony capitalism. It is just to benefit a particular industry or a company.”